LOOKING FOR STABLE AND PASSIVE CASH FLOW? BEN LEYBOVICH
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When we analyze deals, passive income is really the key for us. Appreciation is an added benefit and the
inflation hedge of real estate is unbeatable. But, we sometimes forget to focus on “stable”. Ben buys real
estate for “stable” passive cash flow.
He doesn’t want to be out there hustling to get tenants to stay, or to
get them to behave a certain way. That’s a tough job. He wants stable, passive cash flow. Ben doesn’t rely
on cash flow unless stability is part of the equation.
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How do we achieve stability? How do we not buy a little four-plex that looks great on paper? It makes
income, minus expenses, minus debt service. It makes $500 or $600 a month in cash flow, but you hold it
for six years and you realize that between the turn-overs and the fix-up costs, you’ve just spent two years of
cash flow upfront. This happens to a lot of people. This is exactly the kind of thing that we burn out on. The
high maintenance and high management issues. Why does this happen and how do we avoid it?
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Ben avoids this by recognizing that the desirability of his building and his unit (where it is and what it is in
terms of location and amenities) is 95% of what drives the unit to attract the kind of tenant that will a) pay on
time, b) treat him and his property with respect, and c) treat their neighbors with respect. The property itself
goes 95% of the way toward establishing this reality.
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Good management can fix problems in a good
building, but even the best management will
never fix problems in the wrong kind of building.
Everything starts, as it concerns cash flow that’s
stable, with the building you bought.
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How do we determine what the right building is?
Yes, we buy because the numbers make sense,
but we place value on stable. The numbers don’t
mean anything unless they’re stable.
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Ben not only investigates the building, but also
investigates the neighborhood and what the
people are doing in the neighborhood.
He asks
“Would I like to live here? Is this attractive to
me?”
Notice, that he doesn’t ask “Would my
tenants like to live here?” Ben reasons that if he
doesn’t want to live there, why would anyone
else want to live there? Treat people the same
way you want to be treated.